Supply vs Demand

Keeping the Lights on in a Dynamic Energy Market

There is a global race to build shiny new data centres to meet the expected demands for AI driven data services over the coming decades. Billions of dollars are being invested in the data centres themselves along with the required grid capacity to power them. The US tech giants are investing in projects from renewables to nuclear generation to help service their energy needs. Increases in electricity demand are forecast to come from numerous other sectors including the take-up of electric vehicles, both passenger and commercial.

But what if the sums are wrong?

What if the forecasted demand does not materialise to the extent that the supply side is expecting. Recent history teaches us that increases in demand are not a given and that over-supply is a real possibility. In the period 2023/24, electricity demand increased in the United Kingdom by two terawatt-hours (<1%) but in the preceding period from 2005 to 2023, demand dropped from 406 to 316 terawatt-hours (-22%). There have been several factors in this long-term decline including regulation changes and improvements in energy efficiency.

Over the past two decades we have seen significant improvements in the efficiency of technologies ranging from televisions (CRT to LCD and then LED), to the way we light our world with a move from filament light bulbs to far more efficient LEDs. Switch-mode power supplies replaced inefficient humming transformers that got warm, losing energy in the process, and deployed in a wide range of industrial and consumer applications.

The question is whether we will see further efficiency gains to help balance the shift from burning fossil fuels to technologies like electric vehicles, heat pumps, and electrified heavy industrial processes.

Data centres consume large amounts of power to operate continuously, and our growing need for data is driving up this demand. At the heart of data centres are racks full of CPUs and GPUs processing everything from internet searches to the IoT (Internet of Things) such as our camera doorbells and automated home tech. There is no sign that we are losing our hunger for such services and expect demand to increase exponentially over the coming decades.

But what if for example the silicon chip technology at the heart of data centres becomes more efficient and reduces overall energy demand in the same way that LEDs did for lighting. We have much more lighting now but at a fraction of the running cost of old filament bulbs. Each new generation of silicon chip gets more efficient and new technologies such as optical chips, or Photonic Integrated Circuits (PICs), are being developed that run at lightning speed but don’t get as hot and are therefore far more efficient. The data centre operators are also getting much better at managing energy use, in part thanks to AI modelling to identify efficiency gains. Google for example recently reported 6x more computing power per unit of electricity than 5 years ago.

As we move to an all-electric society, other trends will impact grid demand and are already doing so in certain parts of the world. In Australia there is a high uptake in domestic rooftop solar and battery storage, which is changing the dynamics of the grid, requiring innovation to stabilise and manage the two-way flow of electrons. With more domestic electricity generation, this changes the demand cycles on the grid and the centralised load requirements.

Vehicle to Grid (V2G) is another technology that will have a meaningful impact on how national electricity grids operate and potentially reduce peak demand. Electric cars have large batteries (50-80kWh typically), and with V2G, the ability to sell electricity back to the grid where the infrastructure supports this. This enables consumers to charge their cars when demand is low, and electricity is cheap, and sell when demand and prices are high.

We are experiencing a rapid change in the way we power our world and the demands put on that power. It is unclear what the future demand on national energy grids will look like, but one thing is certain. Innovation and improvements in efficiency will continue at pace and shape our world in ways that are not clear today. Please share your thoughts and ideas in the comments.

Duncan Nicol 2026